Do You Understand Your Health Insurance?

The complex ins and outs of health insurance and the health care system are likely not of interest to many consumers. However, those who take the time to dig in and understand the various concepts and rules will be armed with information to better understand their medical bills or dispute an unexpected charge. In November 2014, the Kaiser Family Foundation decided to assess Americans’ knowledge of health insurance terms and concepts, or their health insurance literacy.

The results of the study were fairly promising for most Americans in terms of the health insurance basics, but many respondents had at least a few areas of confusion. The foundation’s nationally representative survey asked 1,292 adults to give their best go at answering questions varying in complexity. You can even take the same 10-question quiz yourself and see how you measure up to the study’s participants. Encouragingly, over half of respondents got at least seven questions correct out of 10, but only 4% answered every question correctly.

One of the main goals of the study was to identify common gaps in knowledge, and four questions stood out as being the most commonly missed. Two of these questions required calculating a patient’s out-of-pocket costs in different scenarios. About half of respondents could correctly calculate how much they would have to pay for a four-day hospital stay if their plan had a $1000 deductible and $250-per-day copay, and only 16% were able to determine how much they would need to pay for an out-of-network lab test if the insurer covered 60% of allowed charges.

Many were confused about the term “health insurance formulary.” Only a third could identify the correct definition: the list of prescription drugs covered by your insurance plan. In addition, patients often don’t realize they can be seen by out-of-network providers at an in-network hospital or facility. You could have an in-network surgeon, for example, but your anesthesiologist may be out-of-network. Just 41% recognized this nuance of the health care system, which may be why many patients don’t think to ask if every provider is in-network, which sometimes results in unexpected bills. In some cases, patients may have luck disputing these charges.

The groups who tended to score lower on the health insurance literacy test were younger Americans, individuals with less education, and the uninsured. Men and women received roughly the same average scores. While it may not be surprising that the uninsured were among the lowest performers on the quiz, these results shed light on an important issue. As more uninsured Americans acquire coverage through the government exchanges, many will be in uncharted territory. More than four in 10 uninsured respondents did not understand basic health insurance terms like “premium” and “deductible,” and even fewer could grasp more advanced concepts. In order to become meaningful advocates for themselves in the increasingly complex and expensive world of American health care, these individuals will need help closing gaps in understanding.

The Kaiser Family Foundation published the following video to provide a brief and digestible overview of health insurance concepts every American should comprehend. For more information and consumer-friendly resources, visit the foundation’s hub for understanding health insurance.